Despite the surge in popularity that Chinese auto manufacturers have experienced in mainland China, especially with the rise of the middle class, they have found it extremely difficult to penetrate many key markets abroad. The U.S. domestic market has proven to be particularly elusive for them, as their efforts so far have been failures. In spite of this, many Chinese auto manufacturers still hope that they’ll be able to penetrate the market in the next year or so. Here are the following reasons why it has been difficult for Chinese auto manufacturers to be able to do so:
Lack of Funds
The Chinese auto market is quite unique compared to the one in the United States. There are two main types of auto manufacturers that are Chinese-based. The first are state-owned auto manufacturers. While they are profitable and do well, they are mainly focused on expanding their presence in China and don’t have the drive to expand internationally.
The second type of company are privately-owned auto manufacturers. They simply do not have the necessary capital that it would take to break into a market as big as the United States in any measurable capacity, at least not without some outside help from investors.
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Barriers to Entry
In trying to enter the U.S. market, there are some barriers to entry that can be daunting to many auto manufacturers. They are:
- Stringent regulatory requirements
- The need for dealership networks
- The need for a large advertising and marketing budget
- Having to establish brand recognition in an already-mature market
- The need for a production base in America in order to achieve profitable volume sales
Based on the above information, it’s clear that a company who is planning on entering the United States market for the first time will have to have a large budget, especially to withstand the initial hiccups that could arise, even as it pertains to winning over U.S. consumers.
What Does the Future Hold?
It’s hard to be sure of what’s going to happen, namely because many Chinese auto manufacturers have previously announced grand plans to enter the U.S. market before in the past, only to eventually change course due to unforeseen circumstances. Nonetheless, Chinese auto manufacturer BYD Co., has announced that they’re planning on introducing four different type of car models into the United States by the end of this year. They have some notable names supporting them too, including Warren Buffet, who is a minority investor in the company.
Entering the market for many of these companies isn’t necessarily about achieving more profits, but instead, will be looked upon as a status symbol and a way to increase their brand recognition. They have realized the importance of providing a quality product and are attempting to improve their offerings, as U.S. consumers can be extremely picky. One of their main goals is to try and emulate the successes that Japanese and Korean auto manufacturers have had in the past. Time will tell if they succeed or not.